In the Quarterly Report that draws on the downsides of the US Build to Rent market, there are many lessons that can be taken and applied to the UK Build to Rent market.
The report also examines rental performance across the UK, the changing composition of the UK real estate investment market and UK Build to Rent investment volumes.
Some of the learnings taken from the US market include: rushing to close the loss to lease gap doesn’t always pay off, operation costs have increased 10% over the last year; increasing retention rates, focusing on energy efficiency in schemes and adopting a centralised staff model are key ways to bring down OPEX, and age, price point and job growth all influence retention rates in the US.
“The release of Cushman & Wakefield’s Q1 2023 Build to Rent Report is further encouraging news for the Build to Rent sector which has experienced 9.1% annual growth (excluding London), with the capital seeing 11.8% annual growth. There are numerous key drivers behind this. Many people are having to push back home ownership aspirations as a result of higher interest rates and unaffordable property prices, while students are experiencing a better standard of living whilst at university and want a similar style of living when they graduate and move to be near their place of work.
“As a result, we expect demand for well-located Build to Rent developments to continue over the coming years. To deliver on this demand, developers, and their funders, need to ensure that the product is right for the particular micro-market, balancing the right levels of amenity provision with the need to offer competitive rents. With the factors of affordability, amenity, community and flexibility at the front and centre of the minds of many potential tenants, we are confident that the Build to Rent market will continue to evolve and grow to meet these needs, providing a compelling accommodation option and an attractive investment proposition.”Eliot Kaye, Managing Director, Puma Property Finance
Whilst there is much to learn from the US, the UK market has made substantial progress over recent years.
UK excluding London experienced 9.1% annual growth in March 2023 and London experienced 11.8% annual growth. Investor confidence has continued to strengthen since the start of the year, and Q1 2023 saw an estimated £1.12bn invested.
Strong imbalance between supply and demand has continued to support rental growth in the UK and the MSCI universe has seen big shifts in the composition and value of real estate.
In 2007, 80% of held stock was office and retail, with residential only accounting for 2% of its total capital value. Fast forward to 2022 and office and retail now only make up 43%, with residential increasing to 11%.